Learning from Foreign Systems of Innovation

Firms have at least three reasons for monitoring and learning from the development of technological production and organizational competencies of national systems of innovation other than those in which they are embedded themselves and especially from those that are growing strong.

They will be the sources of firms with a strong capacity to compete through innovation. For example, beyond Japan other East Asian countries are developing strong innovation systems. In particular business firms in South Korea and Taiwan now spend more than 2% of GDP on R&D which puts them up with the advanced OECD countries. By the early 1990s, Taiwan was granted more patents in the USA then Sweden and together with South Korea, is catching up fast with Italy, the Netherlands and Switzerland. Other Asian countries like Malaysia are also developing strong technological competencies. Following the collapse of the Russian empire we can also anticipate the re-emergence of strong systems of innovation in the Czech Republic and Hungary.

They are also potential sources of improvement in the corporate management of innovation, and in national systems of innovation. However, as we shall see below, understanding, interpreting and learning general lessons from foreign systems of innovation is a difficult task. Effectiveness in innovation has become bound up with wider national and ideological interests which makes it more difficult to separate fact from beliefs. Both the business press and business education are dominated by the English language and Anglo Saxon examples; very little is available in English on the management of innovation in Germany, and much of the information about the management of innovations in Japan has been via interpretations of researchers from North America.

Finally, firms can benefit more specifically from the technology generated in foreign systems of innovation. Table shows that a high proportion of large European firms attach great importance to foreign sources of technical knowledge, whether obtained through affiliated firms (i.e. direct foreign investment) and joint ventures link with suppliers and customers or reverse engineering. In general they find it more difficult to learn from Japan than from North America and else where in Europe probably because of greater distances – physical linguistic and cultural perhaps more surprising European firms find it most difficult to learn from foreign publicly funded research. This is because effective learning involves more subtle linkages than straight forward market transactions for example, the membership of informal professional networks. This public Knowledge is often seen as a source of potential world innovative advantage. The firms are increasingly active in trying to access foreign sources. In contrast knowledge obtained through market transactions and reverse engineering enables firms to catch up and keep up, with competitors. East Asian firms have been very effective over the past 25 years in making the channel and essential feature of their rapid technological learning.

The slow but significant internalization of R&D is also a means of firms learning from foreign systems of innovation. There are many reasons why multinational companies choose to locate R&D outside their home country including regulatory regime and incentive, lower costs or more specialists human resources proximity to lead suppliers or customers but in many cases a significant motive is to gain access to national or regional innovation networks. Overall the proportion of R&D expenditure made outside the home nation has grown from less than 15% in 1995 to 22% by 2001. However, some countries are more advanced in internationalizing their R&D than others. In this respect European firms are the most internationalized and the Japanese then the least.